GM may suffer future sales backlash from thousands of retirees
GM retirees have been loyal GM fans, often purchasing more than one car, not to mention convincing others in their family and friend networks to buy as well. Like the GM reitrement plan, though, those days may be over.
Call it what you will, but in recent emails both the General Motors Retiree Association (GMRA) and the National Retiree Legislative Network (NRLN) consider the ending of the GM retirement fund a definite breach in loyalty. No doubt it is a throwing under the bus; and if GM can do this to its own, then imagine what might happen to customers over time.
For sure, it’s not a great image message for GM. You might even justify the move by General Motors Company (NYSE: GM) as financially prudent. Nonetheless, this financial reengineering has still soured the attitudes of a majority of GM retirees who have been sending emails to the retiree organizations in a grass roots effort to even protest before the government. Reason is, this kind of financial re-engineering will also create more pension risks to the remaining pension plans by eliminating PBGC protections. It will also significantly reduce PBGC premium contributions from companies.
Fact is, Ford offered lump sum buyouts as well. However, Ford did not take the low road by palming the entire pension plan into an annuity-based entity like Prudential. Even Chrysler has stated that it has no intention of ending its pension plan for salaried retirees.
Of course, Prudential is not complaining, as they are being paid handsomely to take over. Perhaps that is why the monthly benefit is not easily matched by other life insurance companies, including Oxford Life and Security Benefits Corporation which sell indexed annuities with bonus growth and legacy preservation options. Problem is, while you wait a year or two to grow the amount toward an equivalent income, what are retirees supposed to draw from in the meantime? The only choice is savings or IRA; and that's supposed to supplement for the remainder of life.
Be apprised, only a life insurance company can guarantee an income in an annuity form; in this case, Prudential is a group annuity. However, many outside advisors like Mainstay Capital are chomping at the bit to get a hold of all those lump sum dollars to create bond ladders and portfolio mixes in an attempt to preserve legacy funds as well as growth.
According to the NRLN and the GMRA, General Motors is going to give Prudential $3.5 to $4.5 billion to replace its salaried retirees' pension plan with an annuity that will provide steady income, but not provide salaried retirees with the financial protection of ERISA and the PBGC if Prudential went belly up. For the record, on a solvency rating, Oxford Life and Security benefits are higher on the security chain, according to the Standard Analytical Service 2012 report.
It is the auto sales backlash, though, that GM best be prepared to accept as a result. For the record, it is not only the active retirees that are affected by this move. Future retirees at GM will suffer the same fate of loss of protection. Furthermore, potential customers of GM are watching closely how they treat people.
Sure, one can look at it as an opportunity for retirees. However, the money sent to Prudential could have just as well paid into the pension fund, says the NLRN. Hard to disagree. So, do not think this is a free event even for GM. Earnings will take definite hit for the remainder of the year; and GM still owes the taxpayers which includes the retirees. No wonder the stock can't get kack to its IPO price.
More important, though, every pension that was not at risk is now definitely at risk; and greater risk will have to be taken in the market just to match the Prudential numbers, if the lump sum is taken by those who received a lesser amount.
In my view, it is that kind of corporate character that the public watches. My own book, “Perfecting Corporate Character” authored as far back as 1999, is filled with examples of such plans, manipulations and corporate deck-chair maneuvering by corprate executives.
Bottom line is, GM will lose many future sales from retirees as a result. See, when times got tough, those retirees and employees were always a source of sales which GM, even after killing its bond holders in bankruptcy, could count on. Better believe that will now be curtailed - big time.